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Causam eXchange, Inc., (Causam) a privately-held advanced energy settlements company, launched its presale on March 8, 2018 pursuant to Rule 506(c) of Regulation D. The company plans to develop the first Blockchain Instrument for Transferable Equity (BITE), an equity security that is tokenized in a smart contract executed on the Ethereum Network. The smart digital contracts replace today’s paper-based power purchase agreement (PPAs) and their terms are in a standardized form which allows them to be more easily understood and transferable to other parties, enabling market participants to easily buy and sell contracts. According to Causam’s website, the general offering “begins soon.”

Is It A Security Or Utility Token? It is 100% a Security Token and the Company relied on Rule 506(c)

Joe Forbes, Jr., founder and CEO of Causam, stated in a press release that the decision to call the BITE token “a 100% security” is a direct result of the SEC’s warnings. Joe Forbes, Jr. stated that “ICOs are broken” and seems to prefer the term “Tokenized Security Offering.” The company’s decision to rely on Rule 506(c) means that the offering is exempt from registration, subject to a holding period and only open to accredited investors who must comply with anti-money laundering and know-your-customer rules. The press release indicates that Causam’s disclosures to investors about the business and investors’ rights as holders of BITE tokens are far more detailed than many other white papers being used for other blockchain related offerings. And I agree.

Why is the energy market a perfect use case for blockchain technology? Just a few reasons why.

Blockchain technology has the potential to create a more efficient and modernized energy grid by addressing issues such as the lack of energy data access, high transaction costs in the power sector and lack of cybersecurity on the energy grid.

Lack of Data Access: According to the White Paper, large centralized utilities control the access to and content of end customers’ energy data. When a user lacks access to energy data, that lack of transparency prevents the user from understanding how to reduce electricity usage and minimize costs by either changing behavior, shifting to a provider or installing new on-site generation. Causam plans to address this problem by providing secure access to an end customer’s own data and real-time data from the electric power grid, as well as access to the electric power markets. This would give a user the ability to have control over electricity costs, its availability and impacts on the environment.

High Transaction Costs: Causam’s blockchain-based platform, EnergyNet, would leverage blockchain technology to eliminate intermediaries, such as brokers, to allow market participants to transact directly with each other when buying, selling or trading assets and services. Causam, however, will not enter a market that requires that EnergyNet be registered as a market participant for various reasons.

Lack of Cybersecurity: There is no need to belabor the point about the importance of cybersecurity in the power sector and the potential for attacks by bad actors. Causam believes the sector will benefit from the distributed ledger afforded by blockchain technology which will provide greater transparency in electricity transactions and more “eyes” on an abundance of accessible energy data.

In conclusion, there has been an increasing trend in companies relying on Rule 506(c). This blog should not be construed as investment advice and investors should conduct due diligence before investing in ICOs. This means investors should take a critical look at the management team and their prior engagements, the community that supports the project, the communication between the company and investors, whether the blockchain technology makes sense, when and how the tokens will be distributed, whether the offering has an unlimited or hard cap on tokens, and the whitepaper, among other things.

There is a lot more to Rule 506(c) and we would be happy to provide you with an overview during a free initial consultation. If you are interested in learning more about Rule 506(c) or other methods of capital raising, please contact me at (202) 869-0888 (ext. 107) or Lou Bevilacqua at 202-869-0888 (ext. 100).  You can also reach our general information email at info@bevilacquapllc.com.